Investment Approach

Responsible Investing

Central to my investment belief is the view that sustainable companies will be able to generate positive free cash flow from operations over the longer term. Good governance practices provide the framework for this through the provision of appropriate strategic direction and policy setting. In addition, it is the effective allocation of free cash flow over time that drives long-term value creation for shareholders. To be successful, capital allocation requires astute management and oversight by Boards.

We welcome more recent enhancements to transparency and reporting on Environmental and Social considerations. There is substantial evidence that considering ESG factors in research processes enhance the prospects of achieving attractive risk-adjusted performance over the long term.

— William Priest, CEO and co-CIO

Epoch has a long tradition of investing with the purpose of providing solutions for our clients. In recent years we noted that many were beginning to explore incorporating ESG considerations into their investment policies. Hence, to further help our clients, Epoch has allocated resources to improve the formal incorporation of E, S & G considerations into our investing processes. In addition, signing the PRI is clear evidence of Epoch’s commitment to responsible investing.

— Philipp Hensler, President and COO

Dedicated ESG team

Epoch has two investment professionals solely dedicated to the ongoing implementation of Epoch’s ESG program.
Richard Watt
Bio

Ravi Varghese
Bio

Stewardship

Epoch has developed a framework for incorporating ESG factors into our investment process, which we expect will evolve in the coming years, as ESG considerations become a more central focus of publicly traded companies.

Epoch: The Role of Responsible Investing in Active Equity Management
Link to ESG Policy
UK Stewardship Code

Participation in Strategic Initiatives

Epoch is a signatory of the UN Principles for Responsible Investing. We are evaluating a number of initiatives including partnerships with academia, Non-Governmental Organizations (NGOs) and other associations relevant to the enhancement of our ESG processes and clients’ objectives.

United Nations Principles for Responsible Investment (UN PRI)

Industry Associations

Epoch continues to examine the merits of joining various associations to benefit our investment processes and ESG program. These organizations provide valuable education and opportunities to collaborate. To date, Epoch has become a member of CDP and Ceres.

CDP

“CDP (formerly the Carbon Disclosure Project) is a not-for-profit charity that runs the global disclosure system for investorscompaniescitiesstates and regions to manage their environmental impacts. Over the past 15 years CDP has created a system that has resulted in unparalleled engagement on environmental issues worldwide.”
Link to CDP website

Ceres

“Ceres is a sustainability nonprofit organization working with the most influential investors and companies to build leadership and drive solutions throughout the economy. Through powerful networks and advocacy, Ceres tackles the world’s biggest sustainability challenges, including climate change, water scarcity and pollution, and inequitable workplaces.”
Link to Ceres website

Resources


Our Perspectives

The current hype about two-sided digital platforms, blitzscaling and winner-takes-most markets has fueled a surge in IPO listings and produced stratospheric valuations that are difficult to reconcile with free-cash-flow (FCF) fundamentals. The big question is, are we repeating the excesses of the dot-com boom? In this paper, we look at the reasoning used by those who think history is repeating itself including IPO supply, profitability and VC funding. We also look at the weaknesses in those arguments and why some believe that the current situation is different from the dot com bubble, such as median age of tech IPOs and sales growth. Finally, we explore how investors can look at these companies through a free cash flow lens.

June 19, 2019

Blitzscale and Hope: Unicorns, IPOs and the Fear of Repeating the Late 1990s

The current hype about two-sided digital platforms, blitzscaling and winner-takes-most markets has fueled a surge in IPO listings and produced stratospheric valuations that are difficult to reconcile with free-cash-flow (FCF) fundamentals. The big question is, are we repeating the excesses of the dot-com boom? In this paper, we look at the reasoning used by those who think history is repeating itself including IPO supply, profitability and VC funding. We also look at the weaknesses in those arguments and why some believe that the current situation is different from the dot com bubble, such as median age of tech IPOs and sales growth. Finally, we explore how investors can look at these companies through a free cash flow lens.

Does a stock’s price and its P/E ratio tell you how much a company is worth? Conventional wisdom says yes, but we think otherwise. In this paper we explore:

  • The theory behind the discounted cash flow (DCF) valuation model and the underappreciated role that ROIC plays in the model
  • The P/E ratio and find that it does not tell us what most people think it does, nor does its offshoot, the P/E to growth (PEG) ratio
  • How we can use what we have learned about the DCF model to deconstruct P/E ratios in the real world to better understand what they do tell us
June 17, 2019

The P/E Ratio: A User’s Manual

Does a stock’s price and its P/E ratio tell you how much a company is worth? Conventional wisdom says yes, but we think otherwise. In this paper we explore:

  • The theory behind the discounted cash flow (DCF) valuation model and the underappreciated role that ROIC plays in the model
  • The P/E ratio and find that it does not tell us what most people think it does, nor does its offshoot, the P/E to growth (PEG) ratio
  • How we can use what we have learned about the DCF model to deconstruct P/E ratios in the real world to better understand what they do tell us

If there is a “small-cap effect” then why has the Russell 2000 underperformed the Russell 1000 over time?

January 18, 2019

The Size Paradox

If there is a “small-cap effect” then why has the Russell 2000 underperformed the Russell 1000 over time?

China’s mercantilist behavior, underscored by its “Made in China 2025 initiative,” is in conflict with U.S. demands for greater IP protection, a level playing field and improved market access. Left unresolved, free trade and globalization will be in retreat, with broad economic implications beginning with manufacturers.

December 10, 2018

Trump, Tech and Trade

China’s mercantilist behavior, underscored by its “Made in China 2025 initiative,” is in conflict with U.S. demands for greater IP protection, a level playing field and improved market access. Left unresolved, free trade and globalization will be in retreat, with broad economic implications beginning with manufacturers.

While the e-Commerce index as a whole appears frothy, many companies in the sector do possess sound and promising business models. For investors, the key to success is understanding how these business models should be valued. In this paper we examine the reasons e-Commerce may be a bubble, the reasons it may not and a free cash flow based methodology for valuing e-Commerce companies.

September 13, 2018

Is e-Commerce a Bubble?

While the e-Commerce index as a whole appears frothy, many companies in the sector do possess sound and promising business models. For investors, the key to success is understanding how these business models should be valued. In this paper we examine the reasons e-Commerce may be a bubble, the reasons it may not and a free cash flow based methodology for valuing e-Commerce companies.

Three developments (the unwinding of QE, the soaring US budget deficit and the impending wall of maturities, especially of corporate bonds) will engender higher volatility and wider credit spreads. There is also a risk that interest rates will start rising for “bad” reasons (that is, an increase in fixed income supply). Each of these outcomes would be a headwind for high duration strategies.

July 2, 2018

The Return of Price Discovery

Three developments (the unwinding of QE, the soaring US budget deficit and the impending wall of maturities, especially of corporate bonds) will engender higher volatility and wider credit spreads. There is also a risk that interest rates will start rising for “bad” reasons (that is, an increase in fixed income supply). Each of these outcomes would be a headwind for high duration strategies.

Modern Portfolio Theory (MPT) dominates investment thinking today, but the pre-MPT view of the world still holds valuable insights. Our new white paper explores the limits of MPT in aiding successful investing.

April 13, 2018

The Limits of Theory

Modern Portfolio Theory (MPT) dominates investment thinking today, but the pre-MPT view of the world still holds valuable insights. Our new white paper explores the limits of MPT in aiding successful investing.

The Digital Age and the transition from “atoms” to “bits” implies a capital-light economy in which technology is being substituted for labor and physical assets. Its impact is widespread and stretches beyond the technology sector. In the third part of our technology focused series we explore:

  • The evolution of technology and why it is so noticeable today
  • The key differentiator between the first and second machine ages
  • Technology’s impact on microeconomic factors such as demand and marginal revenue
  • Why the digital age entails a radical reevaluation of macroeconomics
  • Implications for investors
January 31, 2018

When “Bits” Meet “Atoms”

The Digital Age and the transition from “atoms” to “bits” implies a capital-light economy in which technology is being substituted for labor and physical assets. Its impact is widespread and stretches beyond the technology sector. In the third part of our technology focused series we explore:

  • The evolution of technology and why it is so noticeable today
  • The key differentiator between the first and second machine ages
  • Technology’s impact on microeconomic factors such as demand and marginal revenue
  • Why the digital age entails a radical reevaluation of macroeconomics
  • Implications for investors

It has long been common practice in the investment world to divide the market up into “value stocks” and “growth stocks.” What do these labels really mean? “Value” connotes that the stocks in this category are undervalued, and should therefore outperform over time, while “growth” implies that these are stocks with faster earnings growth.

December 7, 2017

What Do We Mean When We Talk About Value?

It has long been common practice in the investment world to divide the market up into “value stocks” and “growth stocks.” What do these labels really mean? “Value” connotes that the stocks in this category are undervalued, and should therefore outperform over time, while “growth” implies that these are stocks with faster earnings growth.